Tuesday, December 10, 2013

This Trumps Customer Experience

Is there really anything more important than a great customer experience?

A few weeks ago, I wrote a guest post for Jeannie Walters of 360Connext titled, A Great Customer Experience Trumps... . At the end of the post, I posed the question: "What trumps a great customer experience? Only one thing. Can you guess?"

Today, I'm going to answer the question. Quite simply, the answer is: the employee experience.

I've been talking about the importance of employees in the customer experience equation since my days at J.D. Power and Associates 20 years ago, and yet, in the heat of customer experience design efforts, employees are forgotten.

Don't believe me? There's a ton of evidence out there now that makes the link between the employee experience and the customer experience and, ultimately, on business outcomes.

Temkin Group published their Employee Engagement Benchmark Study earlier this year, and here are some findings:

Among companies whose financial performance is significantly better than that of their peers, 75% of employees are highly or moderately engaged, compared to 47% at under-performing companies. Companies with a significantly better customer experience than their competitors, 75% of employees are highly or moderately engaged, compared to 34% at lagging companies.

Edelman put together a compilation of seven studies on employee engagement. One of those studies is by Aon Hewitt, and according to Edelman, it reveals:

Every one percent increase in employee engagement indicates a 0.6 percent growth in sales, accordingly to Aon Hewitt’s 2013 Trends in Global Employee Engagement report. Applying this logic to a $5 billion company with a gross margin of 55 percent and 15 percent operating margin, a one percent increase in engagement would be worth $20 million – hardly pocket change.

Gallup has done a lot of research, as we know, on employee engagement. They recently published some findings:

In a recent study, Gallup examined 49 publicly traded companies with EPS data available from 2008-2012 and Q12 data available from 2010 and/or 2011 in its database. This study found that businesses with a critical mass of engaged employees outperformed their competition:
  • Companies with an average of 9.3 engaged employees for every actively disengaged employee in 2010-2011 experienced 147% higher EPS compared with their competition in 2011-2012.
  • Companies with an average of 2.6 engaged employees for every actively disengaged employee, in contrast, experienced 2% lower EPS compared with their competition during that same time period.
This graphic summarizes nicely how employee engagement drives business outcomes.

Towers Watson has conducted their own employee engagement research, and their findings show that companies with high levels of employee engagement saw a 19.2% increase in operating income, while those with low levels of engagement experienced a 32.7% decline in operating income.

An HBR article fr0m 2010 states this interesting statistic: "...some - including Starbucks, Limited Brands, and Best Buy - can precisely identify the value of a 0.1% increase in engagement among employees at a particular store. At Best Buy, for example, that value is more than $100,000 in the store’s annual operating income."

Beyond Morale offers an e-book with 99 interesting statistics about employee engagement, like this one:

Increased employee engagement was accompanied by a 12% increase in customer satisfaction and significant double‐digit revenue and margin growth over the past three years. -Serco Study

And this one:

Companies in the Best Companies to Work Study for in the period 2004 – 2008 increased their revenues by 94% and their profits by 315%.

In their Sharpen Customer Experience Focus with Employee Engagement report, Forrester cites this example:

Dell found that customer Net Promoter Scores (NPS) were twice as high for experiences delivered by highly engaged employees.3 And a meta study of 7,939 business units in 36 companies, published in the Journal of Applied Psychology, found that higher employee engagement scores correlated with higher customer satisfaction and loyalty measures.

Brian Gareau has put together a page of resources that highlights some of the research done over the last 10 years that proves the linkage between employee experience and business performance. Kevin Kruse has also put together a similar list of research and resources on the link between employee engagement and various business outcomes.

I've taken liberties in this post to skip right from the employee experience to business performance without mentioning the customer experience. We already know, with perhaps one exception, that a great customer experience drives business growth and success. What we fail to acknowledge is that the people behind the delivery of that customer experience must come more first.

Need one more bit of evidence? I could cite a bunch of other studies, but let's go to the grandfather of all evidence, the Service-Profit Chain. Read the HBR article - as well as their follow-up, which shows how companies are applying its principles today - and the book(s).

Image courtesy of HBR
This 1999 article from Harvard Business School's Working Knowledge summarizes the work that Sears executives did to rebuild the company to focus on customers. The article talks about the new business model and what they discovered: "There is a chain of cause and effect running from employee behavior to customer behavior to profits." Imagine this: their model is data-based. (See the notations regarding the colors/shapes in the sub-heading of the image below.)


Make no mistake. Employees who enjoy their work - are passionate about what they are doing and for whom they are doing it - deliver results. I wrote previously: Because of that enthusiasm and passion for the brand, for the business, employees are eager to contribute to its success. And when we're all working together for the success of the business, I believe that, ultimately, customers will win, too. As will your shareholders.

If people relate to the company they work for, if they form an emotional tie to it and buy into its dreams, they will pour their hearts into making it better. -Howard Schultz

14 comments:

  1. Annette - thanks for pulling this research together! I've been looking for a place where all the research and links between employee experience and customer experience exist! This is terrific and I will be passing it along. Hope you are doing well!

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    1. You're welcome, Michelle! I'm doing great... hope all is well with you, too!

      Annette :-)

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  2. The research is definitely compelling - thanks for putting so much of it in one place.

    Two things I wonder about:
    1) Why don't we have a consistent definition of employee engagement. Even Gallup is murky about how they define it, and the top engagement consultancies don't agree (http://www.toistersolutions.com/blog/2012/4/23/whats-your-definition-of-employee-engagement.html). My preferred definition of engagement is the extent to which employees are purposefully contributing to organizational goals.

    2) Perhaps we should stop looking at customer experience and employee experience separately. I find it hard to believe you can consistently treat employees one way and customers another. They're so interconnected.

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    1. You're welcome, Jeff. Great point; there doesn't seem to be a consistent definition.

      I wrote in a previous post that it's: When there's some confluence of: (1) emotions, commitment, passion, sense of ownership, etc. on the part of the employee about the brand and (2) what the organization does (purpose, brand promise, who the company is and why, etc.) to facilitate and enhance those emotions or that commitment - then we have employee engagement. I'm a firm believer that it's a two-way street.

      To your second point, I agree whole-heartedly. I have a post I started a while ago that is still sitting in my Drafts folder... the working title is, "Can't we just call it 'people experience." The premise is just that... they are inter-connected.

      Annette :-)

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    2. Hi Annette,
      You've done a great job of pulling all of this together.

      However, I have a question about the need for definition. I can see how that would be useful but I can also see difficulties and impossibilities with it too. I mean, if engagement is an emotion like love, say, how can you define and measure it. Surely, it's a hugely subjective thing.

      Should we not concentrate on it's outcomes rather than the thing itself?

      Adrian

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    3. Definition is essential for any company going down this road. You can't easily get better at something if you aren't able to define it.

      My preferred definition for employee engagement is the extent to which an employee is purposefully contributing towards organizational goals.

      Job satisfaction, motivation, emotional connection, etc. are all important engagement drivers. The key is connecting those factors to contribution, since a highly satisfied employee who contributes nothing isn't very valuable.

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    4. Hi Jeff,
      I agree with your first point that 'You can't easily get better at something if you aren't able to define it.'

      However, then you go on to say 'the extent to which an employee is purposefully contributing towards organizational goals'. How would you define that? That, to me, seems very difficult.

      That's why I suggested that we focus on defining the business outcomes that we want rather than engagement itself.

      But, then again, it's always ok to agree to disagree.

      Adrian

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    5. Adrian -- I don't know if we disagree. Defining business outcomes is definitely the starting point for engaging employees. If there aren't clearly defined measures of success, I don't believe you can have engagement.

      Once desired outcomes are clear, engagement is observable. You can see individual employees contributing towards those desired business outcomes.

      Engagement doesn't always need to be measured, but somtimes doing so can help uncover issues. A simple survey will do. Much like a customer satisfaction survey, the number is less important than using the data to continuously improve.

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    6. I agree... we should definitely focus on the business outcomes and work backwards from there... which means we need to define the business issues. One issue is engagement (or lack thereof)... and we need a clear definition of it in order to measure it and "fix it."

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  3. Annette,

    Interesting set of findings, but I have a problem with them. They are all blindingly obvious.

    So my question is slightly different. Why is it that people ignore the blindingly obvious?

    James

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    1. The research I've done on this subject is what's obvious is a matter of perspective. Here's a great example of one of the many factors that can hide something from our perception that should be obvious. People who watch this short video tend to fully perceive one thing or another, but not both:

      http://www.youtube.com/watch?v=vJG698U2Mvo

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    2. James, I think there are a few issues: priorities, lack of understanding, lack of desire to change, doing what we always do and expecting no different (did I just call people insane?), and leadership in general.

      There are probably others, but those are top of mind.

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  4. Annette, you started an interesting debate here.

    As a reporter, I was never able to separate the person from the article. To me, they weren't interviewees and I wasn't a reporter: we were just two people talking about something. If they shared personal info with me, I shared with them, just naturally. The approach ended up being better for the interviewee and me, and also the article, which was much more human. Anyway, I like 'people experience.' Thanks everyone.

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    1. Charlie, I like it. It really should just come that naturally... but, unfortunately, it doesn't. :-(

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